Definition: A natural monopoly occurs when the most efficient number of firms in the industry is one. A natural monopoly will typically have very high fixed costs meaning that it is impractical to have more than one firm producing the good. An example of a natural monopoly is tap water. It makes sense to have …
A typical supply curve shows an increase in supply as wages rise. It slopes from left to right. However, in labour markets, we can often witness a backward bending supply curve. This means after a certain point, higher wages can lead to a decline in labour supply. This occurs when higher wages encourage workers to …
The fiscal multiplier effect occurs when an initial injection into the economy causes a bigger final increase in national income. For example, if the government increased spending by £1 billion but this caused real GDP to increase by a total of £1.7 billion, then the multiplier would have a value of 1.7. Example of how …
Definition of Monopoly A pure monopoly is defined as a single seller of a product, i.e. 100% of market share. In the UK a firm is said to have monopoly power if it has more than 25% of the market share. For example, Tesco @30% market share or Google 90% of search engine traffic. Monopoly …
Pollution permits involve giving firms a legal right to pollute a certain amount e.g. 100 units of Carbon Dioxide per year. If the firm produces less pollution it can sell its pollution permits to other firms. However, if it produces more pollution it has to buy permits from other firms or the government. This creates …
Definition of External costs An external cost occurs when producing or consuming a good or service imposes a cost (negative effect) upon a third party. If there are external costs in consuming a good (negative externalities), the social costs will be greater than the private cost. The existence of external costs can lead to market …
Economic growth means an increase in real GDP. Economic growth means there is an increase in national output and national income. Economic growth is caused by two main factors: An increase in aggregate demand (AD) An increase in aggregate supply (productive capacity) See latest stats on economic growth Demand-side causes In the short term, economic …
Definition of social cost – Social cost is the total cost to society. It includes private costs plus any external costs. Example of driving to work Costs of paying for petrol (personal cost) Costs of increased congestion (external cost) Pollution and worse air quality (external cost) The social cost includes all the above. (Petrol + …